Walker delivers final report

Nathan Williams
04 January 2008

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Sir David Walker published the final draft of his review into disclosure and transparency in the UK private equity industry on 20 Novermber, amid criticisms that the guidelines had been diluted from the rules initially proposed in July.

The guidelines apply to companies acquired in a public-to-private transaction for an enterprise value over £300m, or a private transaction with an enterprise value in excess of £500m. Portfolio companies falling into these brackets should publish an annual report within six months of year-end, detailing the private equity ownership structure. A business review is also required, setting out the potential risks faced by the company, including those relating to leverage. The business review would be modelled on that required for quoted companies under the provisions of Section 417 of the Companies Act 2006, from which private companies were previously exempt.

In his press conference, Walker stated that the removal of this exemption for qualifying portfolio companies should not be understated. When the Companies Act was being re-drafted, issues relating to private equity-owned companies were not even discussed, Walker remarked. Portfolio companies will also be required to publish an audited set of accounts and submit data to the BVCA for use in future industry studies. A committee headed by current BT chair Sir Michael Rake has been established by the BVCA for the purpose of monitoring compliance with the guidelines. The group will be five-strong, made up of two members from within private equity and two from outside the industry as well as an independent chair.

A private equity firm could submit an appeal to the committee if it believes compliance with the guidelines would afford a competitor a significant advantage within the sector it operates, Walker said. While a monitoring committee is welcome, there is a danger it could come to resemble an 'appeals board' tied up with GPs presenting plausible non-compliance cases.

Responding to criticism that as voluntary measures the guidelines do not go far enough, Walker said the review was without precedent and, as such, implementing primary legislation before the guidelines have been tested would be a dangerous step. He said he was unaware of any legislation reverting to voluntary status once implemented as statutory, however, it is possible for movement in the other direction should it prove necessary.